Comparing Cramer’s C.A.N.D.I.E.S.

The market has been down for ten straight trading days (if you count one day the DJIA was up 4 whole points as a down day) and the losses totals 765 points (-7.32%, -76.5 points/day).  From the 2010 high of 11,205 the market has dropped 1,519 points in 48 trading days (-13.6%, -31.64 points/day).

CNBC’s hit stock show ‘Mad Money’ has host Jim Cramer running around in circles spouting stock buying ideas every trading day at 6:00 p.m.  The one weakness of this show is he never recommends you short stocks when the market is headed lower, but he does dig up some good quality companies to buy.  Ignoring the fact that the stock price of even the best companies will drop in a dropping market, let’s take a look at Jim’s favorites.  These favorite stocks from deep inside Cramer’s brain (or his assistant analysts possibly) are called the C.A.N.D.I.E.S.

C – Chipotle Mexican Grill Inc. (NYSE: CMG)
A – Apple Inc. (NSDQ: AAPL)
N – Netflix Inc. (NSDQ: NFLX)
D – Deckers Outdoor Corp. (NSDQ: DECK)
I – Intuitive Surgical Inc. (NSDQ: ISRG)
E – Express Scripts Inc. (NSDQ: ESRX)
S – Salesforce.com Inc. (NYSE: CRM)

All of these stocks are expected to generate earnings growth in the double digits within the next year and all but one will see a double digit percentage growth in revenues.  The highest current P/E of the group is the sole dotcom which sports a very high 141.  Over the next year this number is expected to drop by 60% as they grow their earnings by over 30%.  That is some serious growth but the Blockbuster killing Netflix is expected to see even higher growth in their earnings.  Here are some of their comparative financial numbers;

Stock	Price	P/E (ttm)	P/E (forward)	Earning 2010 (bil)	Earnings 2011	Earnings Growth (%)
CMG	$136.75	31.49	23.42	4.94	5.86	18.62
AAPL	$246.20	20.93	15.19	13.72	16.26	18.51
NFLX	$106.25	48.47	30.25	2.62	3.54	35.11
DECK	$142.30	15.17	12.75	9.99	11.12	11.31
ISRG	$309.50	42.16	30.35	8.48	10.21	20.40
ESRX	$45.84	28.54	14.38	2.49	3.17	27.31
CRM	$87.26	141.41	57.31	1.16	1.52	31.03

As shown in the table Netflix has the highest earnings growth followed by Salesforce.com and Express Scripts. Salesforce and Netflix are carrying higher P/E ratios than Express Scripts. Now let's look at a few more ratios;

Stock	Price	Sales 2010	Sales 2011	Sales Growth %	Profit Margin 2010	PM 2011	PM Growth %
CMG	$136.75	1.76	2.03	15.34	8.63	8.88	2.85
AAPL	246.20	60.3	71.7	18.91	20.55	20.49	-0.33
NFLX	106.25	2.15	2.71	26.05	5.52	5.92	7.19
DECK	142.30	0.9248	1.04	12.46	13.56	13.42	-1.02
ISRG	309.50	1.39	1.67	20.14	23.54	23.59	0.21
ESRX	45.84	45.96	48.32	5.13	2.97	3.60	21.09
CRM	87.26	1.57	1.86	18.47	8.46	9.36	10.60

This table shows that although Express Scripts has the slowest sales growth of the lot they are expanding their profit margin at the fastest rate. Once again Salesforce and Netflix complete the top three for profit margin growth. As far as sales growth goes Netflix, Intuitive Surgical and Apple take the top three spots. The fact that Apple is third in sales growth while growing from 2010 sales of $60.3 billion is impressive but Apple is the world's premier consumer products company with their amazing string of best selling innovative products.

One more table of numbers should help us decide which of these growing companies is the best of the best;

Stock	Price	Dollars paid per Percentage...
		Earnings Growth	Revenue Growth	Profit Margin Growth
CMG	$136.75	$7.34	$8.91	48.05
AAPL	246.20	13.30	13.02	N/A
NFLX	106.25	3.03	4.08	14.77
DECK	142.30	12.58	11.42	N/A
ISRG	309.50	15.17	15.36	1,446.54
ESRX	45.84	1.68	8.93	2.17
CRM	87.26	2.81	4.72	8.23

For earnings growth and profit margin growth Express Scripts is the cheapest stock of all. Netflix and Salesforce top the revenue growth category with Express Scripts coming in third. Apple and Deckers have slightly shrinking profit margins as shown in table 2.

Looking at the business lines and considering a possible double-dip recession floats the same three companies to the top plus one. Chipotle is not an expensive restaurant but people eat out less when the money stops coming in. Apple sells some amazing products and I am a huge fan but these products are expensive. Deckers is seeing declining profit margins and sells footwear. You may have heard the saying 'Baby needs a new pair of shoes' but that is usually uttered before rolling some dice. Deckers may hold up better than CMG and AAPL in a recession but not as well as the last four companies on this list.

Intuitive Surgical and Express Scripts are in a sweet spot for medical care and saving money. With the recent health care reform both these companies should still see strong demand for their products and services. Netflix rents movies for home viewing and with going out to the big screens running at $10+ per ticket, when money gets tight they help entertain people for less. Salesforce.com is in on the cutting edge of cloud computing and helps companies save money and become more productive. Corporations will continue to buy their product and may even ramp up spending when trying to tighten their own fiscal belts.

While all of these companies are great and growing businesses, the top three always seem to be Express Scripts, Netflix and Salesforce.com. You can never rule out Apple as they have proven to be the most innovative electronics company over the past few years and who knows what they have in the pipeline.

As far as P/E and earnings growth go Express Scripts is the best of the best here. Express Scripts is already a huge company with over $45 billion a year in sales and they make all these sales with lower priced transactions. This tells you they make a LOT of transactions and what they sell is in demand and in this case, very necessary. In a recession, Express Scripts should hold up well as far as sales go.

The recent market sell off has brought Express Scripts in to its 200 day exponential moving average. This stock is also sitting on top and gap support. The close from Friday was $45.60 but if the market sells off again and cracks on Tuesday I could see this stock dropping as low as $44.

If you want to be a long term fundamental investor in ESRX, I would buy a little on the open Tuesday morning and add to your position down to $44 (if the market is weak). If the market bounces back Tuesday place a buy stop at $46.06 to buy it on strength. This stock looks oversold and ready for a bounce here, as do most of the stocks in this article, but without an overall market recovery it would be fighting strong headwinds.

One of the talking heads from CNBC's 'Fast Money' has stated he thinks the market could crack open Tuesday as traders coming in from the long weekend, after digesting all the bad economic numbers, show up with a strong sell bias. Keep your eyes on the European and Asian markets on Monday for a clue what Tuesday may bring.

These are all good stocks with growing businesses. I like ESRX, NFLX, CRM and AAPL the most and in that order. Remember, when the tide goes out all boats go down so whenever you enter a trade or invest be mindful of the overall market.